Daily Roundup – Markets review
The US Dollar remains very much in the driving seat as we approach the month and quarter end. Risk appetite is sorely lacking across the board and with the Federal Reserve only holding a modest dovish bias, the dollar and in turn dollar-denominated assets are finding favour with investors. Even yesterday’s downward revision in Q4 GDP was insufficient to have any lasting impact on the greenback, although attention is now turning to the PCE Deflator due for release shortly.
As the Fed’s preferred measure of inflation, the PCE Deflator is tipped to fall from 1.7% in December to 1.4% in January. Whilst again there may be a temptation to blame some of this decline on the US Federal Government shutdown at the start of the year, anything coming in much below forecasts has the potential to ask fresh questions over whether the Fed needs to be taking a more proactive stance in terms of economic stimulus measures. This in turn could inject some fresh volatility into USD crosses ahead of the weekend.
Brexit continues to drive volatility for the Pound. Expectations are that Theresa May’s vote later today will again fail to garner a majority, putting the UK on course for a no-deal Brexit in two weeks time. Sterling has already been selling off this morning although further volatility should be expected as the day unfolds. If the government does manage to win today however, look for a sharp jump in the value of the Pound, with the certainty being applauded.
Next week’s flood of PMI readings will be under scrutiny, but so will developments in US-China trade talks. These events have the ability to drive appetite for risk, which in turn could deliver some meaningful support to currencies like the Aussie Dollar and Japanese Yen. With the DXY Dollar index having risen noticeably over the last week there’s certainly the scope for some profit taking to be seen if underlying market conditions dictate. The start of the next quarter could yet prove to be an appropriate trigger for this.
AUD/USD looks to be a sell, with the 61.8% retracement of the run higher from the start of the month sitting close to the recent support level of 0.7070. A break below here opens he way for a move back to the early March lows around 0.7000.